Rising consumer confidence ensured the markets’ upward rally yesterday and also ended investors’ long wait to see the Dow settle above 13, 000. News of Brent crude oil futures dropping over $2 to $121.55 a barrel also contributed to the broader rally. Investors also ignored dismal home price and good orders data as the Dow clocked up gains and the S&P 500 too recorded its best closing levels in almost four years.
The Dow Jones Industrial Average (DJI) gained 0.2% to settle at 13,005.12. The Standard & Poor 500 increased by 0.3% and signed off yesterday’s trading session at 1,372.18. The tech-laden Nasdaq Composite Index moved up 0.7% and finished at 2,986.76. The fear-gauge CBOE Volatility Index (VIX) inched down 1.3% to settle at 17.96. Consolidated volumes on the New York Stock Exchange (NYSE), AMEX and Nasdaq were 6.4 billion shares, lower than the average daily volume. For 15 stocks that climbed up on the NYSE, 14 stocks were on the declining side.
The big news for the day was the Dow finally settling above 13, 000. This was always in the offing over the last few trading days with the blue-chip index crossing that level during trading sessions. But, the Dow could never sustain its position until the closing bell. The Dow has achieved this feat for the first time since May 19, 2008. After getting heavily battered mid-last year, in August to be precise, when the US lost its much-cherished ‘AAA’ rating, the Dow has managed to regain lost ground. Over three weeks during that period, the Dow had lost 2, 000 points while recessionary fears prevailed. Since the beginning of this year, the Dow has managed to clock up significant gains. It started the year with a bang, recording its best January since 1997. The index is up 6.5% this year till date. The Dow might be far behind the high of 14, 164.53 it recorded on October 9, 2007, but it is also far ahead of the 6,547.05 mark it recorded on March 9, 2009.
It was not only the blue-chip index that won all the laurels. The S&P 500 too had its share of glory yesterday. The index’s latest winning stretch is also the longest since the one that concluded on January 23 this year. Even as investors applauded the Dow and S&P 500’s feat, the Nasdaq also boosted market sentiment. It has slowly approached the 3, 000 level and is dwelling at levels last seen in December 2000 or at the fag-end of the dot-com bubble. Coming back to the S&P 500, the index recorded its highest levels since June 2008. Seven of the 10 industry groups in the S&P 500 finished in the green and consumer discretionary stocks were among the leading gainers.
The Consumer SPDR Select Sector Fund (XLY) gained 0.6%. Stocks including Comcast Corporation (NASDAQ:CMCSA), Amazon.com, Inc. (NASDAQ:AMZN), The Walt Disney Company (NYSE:DIS), Nike, Inc. Common Stock (NYSE:NKE) and Starbucks Corporation (NASDAQ:SBUX) gained 0.6%, 3.0%, 0.7%, 0.2% and 1.4%, respectively.
This brings us to the primary reason behind the markets’ uptrend yesterday. According to the Conference Board, the Consumer Confidence Index increased to 70.8 in February from 61.5 in January. In January the index had recorded a downward movement. The index came in better-than-expected as the consensus had predicted it to be 64. Striking a note of optimism Lynn Franco, Director of The Conference Board Consumer Research Center said: “Consumer Confidence, which had declined last month, posted a sizeable improvement in February. The Index is now close to levels last seen a year ago (Feb. 2011, 72.0.). Consumers are considerably less pessimistic about current business and labor market conditions than they were in January. And, despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects, and their financial situation”.
The report and Lynn Franco’s upbeat comment were enough to lift the mood as investors also chose to ignore dismal data on housing and durable orders. The S&P/Case Shiller 20-city home-price index declined 4% year on year in December. The report hinted at concerns and said: “While we thought we saw some signs of stabilization in the middle of 2011, it appears that neither the economy nor consumer confidence was strong enough to move the market in a positive direction as the year ended”. Unfortunately the data also suggested that ‘all three headline composites ended 2011 at new index lows’.
Separately, the US Department of Commerce reported that new orders for manufactured durable goods in January have declined by 4% to $206.1 billion. Consensus estimated predicted a decline of 0.9%. Excluding transportation, new orders were down 3.2%.
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